ASX code: BWR
Share price: $1.29
Industry: Real Estate
Forecast Distribution: 12 cents per unit
With historically low bond yields and equally low interest rates an ongoing feature of global markets, the search for yield continues. One small-cap listed Australian real estate investment trust that may help quench investor’s thirst for income is Blackwall Property Trust.
It’s fair to say that it has been an interesting journey for both managers and investors in the trust over the past 5 years. In 2012, BWR reported a substantial statutory loss following a contractual dispute that dated back to 2007. Since then, management has effectively stabilised the trust, which now appears to be back on a solid footing.
Though still small at a market capitalisation of about $60m, BWR looks interesting for a range of reasons. The trust is well diversified by both sector and geography while key portfolio metrics continue to improve under the guidance of external manager Blackwall Property Funds (BWF). By December 31 last year, occupancy had increased to 98.1 per cent from 95 per cent while the weighted average lease expiry remains a healthy 5 years.
In terms of the capital structure, BWR has moderate gearing at 43 per cent on a total asset base of $117m. Like most other property trusts, property assets are generally valued through the use of capitalisation rates. Often referred to simply as the cap rate, this is the ratio of net operating income to property asset value. As the cap rate decreases, asset values increase. This has been a significant trend across almost all listed REITs in recent times.
Cap rate compression, however, has not occurred with BWR, where the cap rate still sits at a high 9.1 per cent. This arguably suggests the current per share net tangible asset backing of BWR is conservative at $1.40. This compares favourably to the current market price of $1.29.
Today, the trust holds a range of industrial, mixed use and commercial Australian properties and unlisted property securities. In terms of geography, BWR is heavily weighted to Queensland at about 64 per cent of assets. It has reasonable diversity within its tenant base.
Following the upheaval of 2012 and the subsequent balance sheet repair, management reinstated distributions in early 2014. Annual distributions of 12c per unit look likely, at an attractive yield of about 9.3 per cent.
BWR also offers investors the benefit of tax deferred distributions.
Adrian Ezquerro is a senior analyst at Clime Investment Management.